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Thread: HK tightens lending on luxury homes

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    Default HK tightens lending on luxury homes

    http://www.businesstimes.com.sg/sub/...56137,00.html?

    October 24, 2009, 2.24 pm (Singapore time)

    HK tightens lending on luxury homes


    HONG KONG - Hong Kong's government has announced measures aimed at cooling the property market as low interest rates have spurred a dramatic surge in prices and fears of a possible bubble.

    The Hong Kong Monetary Authority said it had sent a circular to banks on Friday telling them to cut the amount they lend to buyers of luxury homes with immediate effect.

    Loans on properties valued at HK$20 million (US$2.6 million) or more would be capped at 60 per cent, down from 70 per cent. For cheaper properties the maximum loan would remain at 70 per cent but would be capped at HK$12 million.

    The HKMA, Hong Kong's de facto central bank, also reminded banks to exercise prudence when valuing properties and calculating borrowers' ability to repay loans.

    'These are prudential measures designed in the interest of maintaining banking stability, to enhance banks' risk management on mortgage lending to high-end residential properties,' HKMA chief executive Norman Chan said in a statement.

    Record-low interest rates have helped drive up prices by 41 per cent in the luxury property sector while the mass-market segment has risen more than 27 per cent, according to property agencies and consultants cited by the South China Morning Post.

    The government-owned Hong Kong Mortgage Corporation (HKMC) meanwhile announced that from Saturday it would stop offering insurance to property investors and reduce its maximum mortgage size from HK$8 million to HK$6 million and from HK$20 million to HK$12 million under its mortgage insurance schemes.

    'Given the prevailing market conditions, the changes to the Mortgage Insurance Programme are necessary in order to better manage the increased risks,' said HKMC executive director Peter Pang, who is also deputy head of the HKMA.

    Increasingly wealthy mainland Chinese investors and low interest rates have stoked demand in a city of tight supply.

    Last week Henderson Land Development said it sold a duplex for a world record of HK$88,000 per square foot.

    That translated into a price tag of HK$439 million for the luxury property in Hong Kong's Mid-Levels area.

    In his annual policy address last week, Hong Kong leader Donald Tsang said record prices achieved recently 'have caused concern about the supply of flats, difficulty in purchasing a home, and the possibility of a property bubble'. -- AFP

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    http://www.straitstimes.com/Money/St...ry_446004.html

    October 24, 2009 Saturday

    HK caps mortgage limits to cool market

    Move comes amid surge in property prices, lifted by rich mainland buyers


    Prices of Hong Kong luxury homes, such as these in Deep Water Bay, have surged more than 26 per cent this year, fuelled largely by rich mainland Chinese buyers. -- PHOTO: AGENCE FRANCE-PRESSE

    HONG KONG: The territory's central bank moved yesterday to slow a surge in luxury property prices, driven by rich buyers from mainland China by limiting mortgages, amid growing concern over a real estate bubble.

    Last week, Hong Kong's Chief Executive Donald Tsang warned of a potential property bubble - as one luxury flat in the city sold for a world record HK$71,280 (S$12,800) per sq ft - and said the government could release more land for sale.

    The Hong Kong Monetary Authority (HKMA) said yesterday it would cap the mortgage limit for luxury property at 60 per cent, down from 70 per cent, and limit mortgage loan values.

    'It is very difficult to detect if a bubble is there,' Mr Norman Chan, chief executive of the HKMA, told reporters.

    'But what we're concerned about is, given the very sharp rise in prices in this top segment of the property market, the risk, or credit risk, to these mortgage loans to these properties has increased.'

    The HKMA said the 60 per cent mortgage cap would apply to properties valued at HK$20 million or more. For properties below that, the 70 per cent ratio will remain but the maximum loan amount will be capped at HK$12 million.

    'We do not directly target price levels,' Mr Chan said.

    Prices have surged by 26 per cent this year, and by more in the luxury segment, where mainland Chinese are snapping up apartments. Many of them are entrepreneurs who are flush with cash and would not be deterred by the mortgage limit, analysts say. Mr Chan acknowledged that but said there was still a portion of people needing mortgages.

    He also warned homebuyers and banks to account for an eventual rise in interest rates from record lows.

    Financial Secretary John Tsang plans to discuss the government's concerns with developers next week, a source familiar with the situation said yesterday. Data showed housing construction this year is down 60 per cent from three years ago.

    As cheap money globally is boosting fund flows into Asian assets and driving up property prices, Singapore's Government last month moved to release more land and make it harder for home buyers to defer payments.

    Hong Kong's currency peg to the US dollar forces it to track US interest rates, which are expected to remain low for some time.

    Private housing construction between January and September this year totalled 5,100 units, government data showed yesterday. For the whole of last year, construction totalled 8,000 units - fewer than half the 17,300 units in 2006 and below the 15,000 in 2005.

    REUTERS

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